Record RevPAR ahead for extended-stay
 
Record RevPAR ahead for extended-stay
15 NOVEMBER 2010 8:25 AM

After an abysmal 2009, extended-stay hotels are forecast to hit double-digit RevPAR increases during 2011. Just how high will the metric go?

During August 2010, the revised forecast for extended stay hotels suggested a very real possibility that growth in revenue per available room could hit double digits during 2011.

The segment’s performance in the third quarter of 2010 strengthened the potential for record extended-stay hotel RevPAR growth in 2011 and for extended-stay hotel nominal RevPAR to exceed the peak achieved in 2007.

Room supply growth contracted further in the third quarter and an annual increase of 2.3% is now forecast for 2010 compared to 2009. This would be the slowest rate of supply growth for at least 15 years. With rooms under construction failing to all-time lows, the rate of increase in supply is set to decline again during 2011. We project extended stay room supply will increase 1% for 2011 compared with 2010.

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Extended-stay room night demand is up 14.8% through the third quarter of 2010 compared with the same period in 2009. For year-end 2010, we forecast annual demand will be 11.8% higher than in 2009. If the correlation between extended stay and overall hotel performance coming out of the current recession is similar to the previous downturn and STR’s forecast of 2.5% overall hotel demand growth during 2011 is realized, extended stay hotel demand should increase 7 to 8% during 2011. If so, average occupancy would rise into the mid-70% range.

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The last time extended-stay average occupancy was in this range was during 2005 and 2006, when annual increases in average rate were 7.3 and 10.5%, respectively. Supply growth limited occupancy growth during 2005 and caused occupancy to decline during 2006. Supply increases in 2011 are very unlikely to constrain occupancy growth, which should have a significant contribution to the forecasted annual increase in RevPAR.

STR projects average daily rate will increase 3.9% for all hotels during 2011. If the correlation between overall and extended stay hotel ADR is similar to the last post-recessionary period, extended stay ADR is forecast to grow 5.2% during in 2011.

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Emerging from the last downtown, extended-stay hotels took about 19 quarters to return nominal RevPAR to the peak set in 2000. RevPAR fell further during the most recent recession, but it is recovering more quickly. Extended stay nominal RevPAR in 2010 is projected to be at about 90% of its annual peak set in 2007. Year-end 2011 RevPAR growth is expected to be 11.6%.

Supply growth during 2011 is at a fraction of what it was during the previous rebound, which provides a foundation for significant increases in both occupancy and ADR. The outlook has rarely been this good for extended stay hotels. The following table summarizes recent history and our forecast for 2010 and 2011.

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